Crypto platforms introduce new products as investors explore ways to save tax

They are looking to earn interest on their crypto deposits or draw loans against cryptocurrencies, without attracting the new tax.

The budget proposed a 30% tax on returns from digital currencies and a 1% Tax Deducted at Source (TDS) on digital assets.

The government has not used the term “cryptocurrency” in the budget, but rather “virtual digital assets.”

This means there will not be any tax on crypto-based products, investors said.

“The way the regulations are today, investors who invest in crypto-based products should not be covered either under the 1% TDS, or 30% tax on income. However, we have sought clarity on this from the government and will be approaching them in this regard,” said Darshan Bathija, cofounder and chief executive of Vauld, a Singapore-based cryptocurrency exchange.

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Crypto platform executives say if there is no tax incidence on crypto-based products, it could lead to greater demand from investors.

“It (tax) will increase our operations as people will prefer to take out a loan on their crypto holding, instead of selling it to avoid the tax implications,” said Kumar Gaurav, founder and CEO of Cashaa, an online banking platform that manages both fiat as well as cryptocurrencies.

It will also boost long-term holders, who will use our savings account to generate passive income without trading, which will trigger TDS complications, Gaurav added.

There is no clarity on how the new tax will apply to crypto investments and whether it will impact returns from loans drawn against cryptocurrencies.

Given the volatile nature of crypto assets, investors may be more inclined to products that offer stable returns.

“We have already released a new product which will give up to 24% annual interest rate on stablecoins just by holding it in our wallet. Soon we will see a lot of startups tap this market, as bank interest rates in India are below 8%, but converting them into dollar-backed stablecoins can increase the interest rate drastically,” said Gaurav.

Stablecoins are cryptocurrencies whose value is derived from an underlying asset – US dollar or gold.

The crypto market is increasingly getting sophisticated as global players launch products like Exchange Traded Funds where even conservative investors can invest in cryptocurrencies without suffering the vagaries of volatility inherent in the digital asset.